United States: U.S. Supreme Court Ruling - ERISA Equitable Relief Not So Equitable?


On January 20, 2016, the United States Supreme Court ruled in Montanile v. Bd. of Trs. of Nat'l Elevator Indus. Health Benefit Plan that when an ERISA plan participant obtains a settlement fund from a third party, but spends the settlement on nontraceable items (like food or travel), a plan fiduciary cannot recover from the participant's remaining assets the medical expenses it paid on the participant's behalf.

The Court resolved a split among the circuit courts regarding an ERISA plan fiduciary's right to enforce an equitable lien against a participant's general assets – when the particular settlement fund to which the lien initially attached has been dissipated. The Court agreed with the circuits that had held an ERISA plan fiduciary cannot seek reimbursement from a participant's general assets, explaining that the plan's lien can only be enforced against a specific fund or traceable property that the participant possesses at the time the plan's claim is filed. This is contrary to the more plan-friendly view that would allow reimbursement out of a participant's general assets on the basis that dissipation of the specific fund to which the equitable lien attached cannot destroy the underlying reimbursement obligation.

What Does this Mean?

The Court's ruling primarily affects claims paid by an ERISA health plan for medical expenses incurred as a result of a personal injury involving an at-fault third party (e.g., car accidents). Most health plans have subrogation clauses that allow the plan to seek reimbursement for those medical claims if the injured person later recovers from the at-fault party. However, if the injured person spends the funds received from the at-fault party, the plan will not be able to enforce its reimbursement claim unless it can trace the funds to specific property.

The moral of the story is that self-insured plans that wish to enforce their subrogation and right of recovery rights must act quickly before the proceeds from any law suit against a third party to recover the medical expenses have been commingled with the plan participant's other assets. The plan's equitable lien is against the "fund." Once the "fund" is gone (or can't be "traced" to other specific property), the equitable lien is also gone. Therefore, health plans will need to evaluate and potentially adapt their administrative subrogation practices to ensure efficient detection, tracking and responses to claims and payments for personal injuries.

Additionally, sponsors of ERISA pension and disability plans should monitor the impact, if any, of the Court's ruling on these plans. For example, it remains to be seen if the same tracing requirement that applies to third party settlements in the subrogation context extends to overpayments from pension and disability plans.

Lastly, the Court's ruling could spur legislative initiatives to expand the ERISA remedies available to plan fiduciaries.

Plan sponsors should note that previous Supreme Court cases decided in the past several years have provided instructive guidance on the plan and summary plan description language needed to establish a subrogation or recovery right. This case narrowly defines the property against which those rights may be exercised.

The details of the case are described below.


Robert Montanile was a participant in an ERISA health plan administered by the Board of Trustees of the National Elevator Industry Health Benefit Plan (the "Plan"). In December 2008, Montanile was hit by a drunk driver, and the Plan paid more than $120,000 for his medical expenses. When Montanile later obtained a $500,000 settlement for his injuries, the Plan sought to enforce its subrogation provision – pursuant to which amounts recovered by a participant from another party were to be used to reimburse the Plan for claims paid on the participant's behalf. However, Montanile's attorney argued that the Plan was not entitled to any recovery. When the parties failed to reach an agreement, Montanile's attorney informed the Plan that he would release the remaining settlement fund to Montanile if the Plan did not object within 14 days. The attorney then distributed the settlement fund to Montanile after the Plan failed to object within that time frame. Montanile received $240,000 (the other $260,000 having been paid to his attorneys), most of which he spent on nontraceable items.

Six months later, the Plan sued Montanile for repayment under section §502(a)(3) of ERISA. In response, Montanile argued that the Plan could only attach settlement funds that were still in his possession, or the traceable proceeds of such funds. In this case, since he had spent almost all of his settlement funds, he contended that the Plan could not attach his other assets to satisfy its claim, because such a claim would not be "appropriate equitable relief" under §502(a)(3) of ERISA.


The issue before the Court was whether or not the reimbursement the Plan was seeking from Montanile constituted a "legal" or an "equitable" remedy, a critical distinction since the only remedy available to ERISA plan fiduciaries is "appropriate equitable relief" within the meaning of §502(a)(3). The Court has previously addressed the scope of §502(a)(3) relief on a number of occasions. According to its precedent, "equitable relief" is limited to those categories of relief that were typically available in equity during the days of the divided bench (i.e., the period before 1938 when courts of law and equity were separate). Generally speaking, that means an ERISA plan fiduciary can only recover from specifically identifiable funds in the possession and control of a participant. In this case, Montanile was in possession and control of the funds the Plan was seeking but by the time the Plan filed its §502(a)(3) claim, Montanile had largely spent those funds. The question, therefore, for the Court was whether or not the Plan could enforce its equitable lien (created by the Plan's subrogation clause) against Montanile's general assets.

The Court turned to standard equity treatises to answer this question and explained that a participant's expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien – even though the participant's conduct is wrongful. According to the Court, "equitable remedies are, as a general rule, directed against some specific thing . . . rather than a right to recover a sum of money generally out of the defendant's assets." Under this reasoning, once Montanile spent his settlement fund on nontraceable items, there was no longer a specific thing against which the Plan could enforce its equitable lien and therefore, the Plan's lien was destroyed, leaving only a personal claim against Montanile's general assets. Recovering out of those assets, however, is a legal remedy - beyond the scope of "appropriate equitable relief" under §502(a)(3) of ERISA.

Based upon the foregoing, the Court reversed the lower courts' rulings in favor of the Plan. However, the Court noted a factual dispute as to whether or not Montanile spent his entire $240,000 settlement on nontraceable items and therefore remanded the case back to the District Court to determine whether or not Montanile has any remaining separately held funds or traceable proceeds from which the Plan might recover.

Should your organization need further advice or assistance analyzing the subrogation and recovery process and administrative contracts with third parties, please contact any of the lawyers in our Employee Benefits and Executive Compensation practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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